THE UNEXPECTED

“Uncertainty, in the presence of vivid hopes and fears, is painful, but must be endured if we wish to live without the support of comforting fairy tales.” Bertrand Russell

“What you should learn when you make a mistake because you did not anticipate something is that the world is difficult to anticipate. That’s the correct lesson to learn from surprises: that the world is surprising.” Daniel Kahneman

“In battle, our initial reactions can often be the difference between success and failure, life and death. If you prepare for the most challenging scenarios, chances are good that you will be much better prepared for the unforeseen.” Captain D, Abrashoff

“Experience shows that what happens is always the thing against which one has not made provision in advance.” John Maynard Keynes

“Favourable surprises are easy to handle. It’s the unfavourable surprises that cause the trouble.” Charlie Munger

"Our society and educational systems are analytically oriented. Consequently, like the captain of the Titanic, it is easy for us to prefer to rely on data or other hard, empirical information (seeing the iceberg) versus clues (the telegraph). Unfortunately, such reliance makes us vulnerable to the unexpected. Of course it is easier to deal with certainty rather than with the unknown. Thus it is easier to look at the numbers, which are historical as they measure events after the fact, and what management has to say (the table talk of the poker game of investing) than to deal subjectively with events and with what management is not saying." Bennett Goodspeed 1978

"A boxer is rarely knocked out by the punch he expects. It's the unexpected one that does him in.” S Stovall

"People tend to underestimate low-probability events when they haven’t happened recently and overestimate them when they have happened recently. That is the nature of the human animal." Warren Buffett

"Human biases tend to force people to focus exclusively on the good side of trades, which can be very dangerous.. The problem is, something can always happen, and markets often go where they are least expected to go." Jim Leitner

“Whenever the market is pointing at something and saying this is a risk to be concerned about, in my experience, most of the time, the risk ends up being not as bad as the market anticipated.” Jamie Mai

“I believe it’s very rare that when you’re focused on a risk that it kills you, because you’re doing something about it. It’s usually what people aren’t talking about that ends up hurting you.” Bruce Berkowitz

"Financial markets constantly anticipate events, both on the positive and on the negative side, which fail to materialize exactly because they have been anticipated. No wonder that financial markets get so excited in anticipating events that seem quite harmless in retrospect! It is an old joke that the stock market has predicted seven of the last two recessions. We can now understand why that should be so. By the same token, financial crashes tend to occur only when they are unexpected." George Soros

“The real catastrophic events are the ones you never see coming.” Robert Kleinschmidt

"The light can at any time go from green to red without pausing at yellow." Warren Buffett

"Charlie [Munger] and I spend a lot of time thinking about things that could hit us out of the blue that other people don’t include in their thinking. And we may miss some opportunities because of that, but we feel it’s essential when managing other people’s money or, for that matter, managing our own money." Warren Buffett

“My job is to make sure we are protected from the predictable and the unpredictable.” Paul Singer

"Some people seem to think there’s no trouble just because it hasn’t happened yet. If you jump out the window at the 42nd floor and you’re still doing fine as you pass the 27th floor, that doesn’t mean you don’t have a serious problem. I would want to address the problem right now.” Charlie Munger

“A former colleague used to say, “It’s the things people aren’t worried about that you need to worry about,” which I think is often true. What hits us out of left field and we don’t anticipate.” Stephen Goddard

“It does no good to rail against unexpected events in the world. The only thing unexpected should be the exact way that the world surprises us, not the fact of periodic surprises.” Paul Singer

"We like to rely on history to justify our forecasts of the long run, but history tells us over and over again that the unexpected and unthinkable are the norm, not an anomaly. That is the real lesson of history." Peter Bernstein

"The reality is that if you trade long enough everything happens." Steve Cohen

“Markets can do anything. And you look at the history of markets and you just see everything under the sun.” Warren Buffett

“In the financial markets, there is rarely anything new under the sun, but you can never say you’ve seen it all, and what you thought you would never see can clobber you.” Seth Klarman

“I’ve learned in this business never to say never because things do happen that have caused me to want to retract some earlier statements.” Warren Buffett

"Being aware that a single, big mistake can wipe out a lifetime of successes, a wealth manager must be hardwired to recognise and avoid grave risks, including those never experienced before." Frank Martin

"We are information hounds. I have to be prepared for the unexpected and always afraid of missing something, paranoid about what I don't hear. The risk of failure is an important driver." Mario Gabelli

“The expected never happens; it is the unexpected always." John Maynard Keynes

"Markets .. can and will change in unexpected ways and at unexpected times." Warren Buffett

“Be prepared for the unknown, it happens.” Bruce Berkowitz

"I think I have a little bit better appreciation today, and I wished I had then, to not only expect the unexpected, but just how bizarre and severe the unexpected could be." Larry Robbins

“When you are uncertain about the future, don’t position your portfolio as if you were certain.” James Montier

“Events can move from the impossible to the inevitable without ever stopping at the probable." David Einhorn 

"In life, both financial and social, sometimes events swing to extremes that seem inconceivable to conventional minds." Barton Biggs

“Albert Einstein said: ‘Whoever undertakes to set himself up as a judge of truth and knowledge is shipwrecked by the laughter of the gods.’ We can’t predict what is going to happen in life. Never underestimate the chance of rare events.” Peter Bevelin

“In an uncertain world, governed by probabilities rather than rules, the only constant may be that the more time that passes, the more probable it becomes that you will at some point encounter an improbable event.” Leon Levy

“Things that have never happened before are bound to occur with some regularity. You must always be prepared for the unexpected, including sudden, sharp downward swings in markets and the economy. Whatever adverse scenario you can contemplate, reality can be far worse.” Seth Klarman

“What may “kill me” is often what I least expect.” Peter Bevelin

"No matter how well you think you understand a business, something can always happen that will surprise you." Peter Lynch

“You can wake up and find yourself completely surprised.” William Browne

“Accepting that we cannot predict the future ie that there will always be unexpected and highly consequential events – is the first step in becoming less fragile and more adaptable.” Seth Klarman

“Despite claims to the contrary, even the best fund managers can never predict with any certainty what the future holds. Since fortune-telling is not a viable option, we must be prepared to react to whatever reality comes our way.” Bruce Berkowitz

“The assumption that something can’t happen has the potential to make it happen , since people who believe it can’t happen will engage in risky behaviour and thus alter the environment.” Howard Marks

“Depend on the unimaginable. Its important that you put a non-zero imaginative quality to your approach.” John Burbank

"Occasionally .. the unthinkable happens." Warren Buffett

"The unthinkable can always happen, and you have to run your affairs accordingly." Peter Bernstein

“Failure of imagination consists in the first instance of not anticipating the possible extremeness of future events, and in the second instance of failing to understand the knock-on consequences of extreme events.” Howard Marks

"In looking for an investment manager to succeed me, we care enormously about finding somebody who’s not cognizant of everything risky that’s already happened, but that also can envision things that have not yet been experienced. That’s our job in the insurance business, and it’s our job in the investment business." Warren Buffett

"You could say our failures of foresight were primarily failures of imagination, like the failure to foresee terrorists flying planes into buildings before September 11." Tim Geithner [on the GFC]

“A universal irony of risk is that no matter how hard you try to quantify it it will always leave out the stuff you can’t imagine or aren’t thinking of. Which is the stuff that matters most.” Morgan Housel

"One thing September 11 attacks did for me was to reconfirm that tail risk should not be allowed in your portfolio because things happen that you can't imagine." Jim Leitner

"We should all be humble enough to realize that once every 20 or 30 or 40 years, values go to real extremes. Any investment program must take into account the impossibility of knowing when and to what extent such extremes might occur.” Paul Singer

"We are prepared for anything. We’ll always be prepared for anything." Warren Buffett

"No matter how much time you put into addressing risk, sometimes there are unforeseen events that blindside you.. unexpected external events can leave you with no chance to respond. And they can be disastrous." Sam Zell

"We do spend a lot of time thinking about things that can go wrong in a very big and very unexpected way. And financial markets have vulnerabilities to that, you know, we try to think of and we try to build in ways to protect us against it and perhaps even build in some capabilities where we think we might profit in a huge way from it." Warren Buffett

"In the investment business, relatively unpredictable outlier developments sometimes can quickly derail otherwise attractive investments. It comes with the territory. So while we work hard to reduce the risks of large permanent loss, we cannot completely eliminate large risks. However, we can draw a line on how much risk we are willing to accept - a line that provides sufficient apparent protection and yet prevents us from being so risk averse that we turn down too many attractive opportunities. One should not invest with the precept that the next 100-year storm is around the corner." Ed Wachenheim

"Though practically all days are relatively uneventful, tomorrow is always uncertain. (I felt no special apprehension on December 6, 1941 or September 10, 2001.) And if you can’t predict what tomorrow will bring, you must be prepared for whatever it does." Warren Buffett

“The best thing investors can do to prepare themselves and their portfolio for an unexpected shock is by performing different stress tests on their holdings. What would happen to a company if interest rates and inflation skyrocket, interest rates turn negative and deflation occurs, access to capital markets dries up, a cyber-attack or pandemic happens, or if a war broke out? We will never know if or when these macro events may occur, but it is helpful to think how certain events may impact the fundamentals of a business you plan to own over the next 10 years.” Joe Frankenfield

“You have to keep reminding yourself: We don't know what's going to happen with anything, ever. And so it's inevitable that a certain percentage of our decisions will be wrong. There's just no way we can always make the right decision. That doesn't mean you're an idiot. But it does mean you must focus on how serious the consequences could be if you turn out to be wrong: Suppose this doesn't do what I expect it to do. What's gonna be the impact on me? If it goes wrong, how wrong could it go and how much will it matter? Pascal's Wager doesn't mean that you have to be convinced beyond doubt that you are right. But you have to think about the consequences of what you're doing and establish that you can survive them if you're wrong. Consequences are more important than probabilities.” Peter Bernstein

“If markets never crashed they wouldn’t be risky. If they weren’t risky they’d get very expensive as all potential returns were wrung out. When markets are expensive they’re fragile. And when they’re fragile they crash. If you accept that logic – and I think it’s the punchline of all market history – you realize that huge market declines characterized as surprising and shocking and unexpected are in fact foreseeable. The timing isn’t predictable but the occurrence is inevitable. If you get caught in a period when you lose a third of your money and it stays that way for a year or two, you have not been hit by a 100-year storm; you’ve just experienced the base rate of investing, par for the course. That’s why they’re normal disasters.” Morgan Housel

“The constant lesson of history is the dominant role played by surprise. Just when we are most comfortable with an environment and come to believe we finally understand it, the ground shifts under our feet. Surprise is the rule, not the exception. That’s a fancy way of saying we don’t know what the future holds. Even the most serious efforts to make predictions can end up so far from the mark as to be more dangerous than useless.” Peter Bernstein